Vietnam
EnglishThe Ministry of Finance's proposal to change import and export taxes on construction steel makes the market wonder what will impact on the listed steel companies?
Many changes in steel import and export tax
In the draft decree amending and supplementing a number of articles of Decree 57 in 2020 on the newly completed preferential import and export tariff, the Ministry of Finance proposes to reduce import tax on some construction steel products. The draft will be submitted to the Government for study before it takes effect.
According to the Ministry of Finance, high steel prices have greatly affected the disbursement progress of public investment projects and increased input costs of many manufacturing industries. Meanwhile, the steel industry has been completely self-sufficient and can supply enough for domestic demand for billet, construction steel and some types of steel plate, and has been exported to foreign countries. In order to contribute to lowering the price of construction steel products, promoting enterprises to reduce costs, especially in the context of high raw material prices, the Ministry of Finance proposed a plan to reduce export taxes on billet and import taxes on some types of iron and steel.
Specifically, on steel import tax, the Ministry of Finance proposed to the Government to reduce tax on a number of steel products including reinforced concrete in groups 72.13, 72.14, 72.15 from 20% down to 15%; angle, mold and shaped steel of heading 72.16 and serrated steel of heading 72.13 from 15% down to 10%.
For the group of flat-rolled non-alloy steels belonging to 8 product codes of group 72.10, the proposed import tax rate is reduced from 20% and 25% down to 15%.
Although the reduction in import tax rates for some of the above-mentioned items will reduce state budget revenue, the impact is not expected to be large because the current import demand for these iron and steel products is not high.
Besides, regarding export tax on billet, the Ministry of Finance also proposed the Government to increase export tax on steel billet [group 72.06 and 72.07] from 0% to 5%. If this option is approved, it will contribute to stabilizing the supply of billet for the domestic market, stabilizing prices in the market and limiting the export of steel billet, keeping domestic production, ensuring sustainable development of the long-term steel industry.
According to the Vietnam Steel Association [VSA], the average price of domestic construction steel in the second quarter of 2021 reached VND 16,7 million/ton, a sharp increase of 50% compared to the same period in 2020 and 39% compared to the time at the end of 2020.
Listed steel companies have little impact?
In general, VNDIRECT Securities Company believes that the impact of this tax adjustment will not be too great for listed steel companies.
In case the difference between domestic and international billet prices is not too large, enterprises may limit exports and switch to domestic sales or focus on rolling finished steel products. The increased steel supply will partly affect the domestic steel price. Besides, the 5% tax rate on billet products will slightly affect enterprises exporting this product. VNDIRECT gives an example, for HPG, if the company maintains the export of steel billet as in the first 6 months of the year and bears all the increased tax, its pre-tax profit may decrease by 435 billion VND [equivalent to 1,3% of VNDIRECT's forecasted profit for the whole year of 2021].
Import demand for products that are expected to be taxed is not too great, while Vietnam's construction steel price is 8% lower than China's, so the risk of imported steel competing with domestic steel is low. .
Specifically, for the 5% increase in export tax on billet, VNDIRECT cited VSA's data showing that domestic steel enterprises [only members of VSA] exported 748.756 tons of square billet in the first 5 months of 2021. Notably, HPG is the largest exporter of square billet, with 560.262 tons, while TungHo is the enterprise with the largest proportion of square billet exports / total steel consumption of the enterprise. [22%]. Thus, if the export tax rate increases from 0% to 5%, it will likely have the most negative impact on TungHo and HPG.
As for HPG, due to the shortage of global steel supply, the company has maintained high billet export volume in the first 4 months of 2021 to take advantage of the product's good selling price and profit margin. However, HPG's billet export volume decreased sharply in May-June 2021, accounting for less than 8% of the company's total steel consumption, significantly lower than 23,2% in the previous year. January 2021 and 26% of the 2020 average.
According to HPG's management, the company's orientation is to gradually reduce sales of steel billets and focus on consuming finished products - long steel [with higher profit margin and has started operating at full capacity since March/ 2021] in the domestic market in the long term. HPG is also testing steel rolling mill No. 3 [at Dung Quat Iron and Steel Complex, with a capacity of 1 million tons/year] and is expected to go into commercial production this year, thereby helping the company reduce pressure to sell semi-finished products - billet when finished steel production capacity has not yet met the demand.
According to VNDIRECT's analysis, thanks to the flexible production line, HPG can adjust the production output of square billet and flat billet [used to produce hot rolled coil - HRC, the product that Vietnam steel is dependent on the export market] in a certain proportion of the 5,6 million tons of billet at Dung Quat Complex.
Therefore, VNDIRECT believes that the steel billet export tax rate, if applied, may negatively affect HPG in the short term, but the impact is not too great.
On the other hand, the increase in export tax on steel billet may cause exporters to sell this product to the domestic market, causing the price of steel billet to decrease in the near future. However, the largest square billet exporter – HPG will reduce semi-finished products in the second half of 2021 and 2022, so the volume of billet sold to the domestic market will be negligible during this time. .
Regarding the reduction of 5-10% of import tax on some construction steel products, VNDIRECT believes that Vietnam's imported steel output is not significant for many reasons such as: from the beginning of 2020, the domestic construction steel price Vietnam's territory is regularly lower than that of China and is currently 8% lower. Enterprises exporting steel to Vietnam will have to bear additional transportation costs. According to Decision 918/QD-BCT, long steel products imported into Vietnam are subject to a safeguarding duties rate of 7,9% from March 22/ 2021 to March 21/ 2022, before being reduced to 6,4% from March 22/2022 to March 31/2023.
Thus, if the import tax rate is reduced by 5-10%, the price of Vietnamese construction steel is still about 20% cheaper than the price of imported steel. Also in the Draft Decree of the Ministry of Finance, the import demand for long steel products proposed to reduce import tax this time is not too great. Therefore, VNDIRECT believes that the impact of the import tax reduction on domestic steel enterprises is negligible.
Source: Satthep.net
